In WBAAR/2023-24 -AAR- AAR (West Bengal) rules Mindrill Systems and Solutions Private Limitednot eligible for ITC on warehouse construction expenses capitalized in their books of account
Members Sarthak Saxena &JoyjitBanik [26-06-2023]

Read Order: In Re: Mindrill Systems and Solutions Private Limited

Chahat Varma

New Delhi, July 17, 2023: The West Bengal Authority for Advance Rulings has ruled that Mindrill Systems and Solutions Private Limited (applicant) was not eligible for input tax credit (ITC) on the inward supply of goods and services used for the construction of a warehouse.

The applicant, a manufacturer of equipment and spare parts for the mining and construction industry, constructed a warehouse with the intention of renting it out as part of their business expansion. The constructed warehouse was leased to 'Zomato Hyperpure Private Limited', and the applicant had been paying tax on this supply. The applicant sought clarification on whether they can claim input tax credit for the inward supply of inputs or input services used in the construction of the warehouse and utilize it to pay tax on the outward supply of services related to renting the warehouse. They also inquired if input tax credit can be claimed and utilized even if the construction expenses are not capitalized in their books.

The Authority noted that when a person claimed to make purchases or sales ‘on his own account’, it meant that the person was not acting on behalf of others and accounts for the expenses and income in their books. In this case, the applicant had constructed the warehouse, accounted for it in their books, and retained the ownership/title of the warehouse. The applicant also used the warehouse to provide outward supplies of warehousing service and/or renting or leasing service. Therefore, the Authority concluded that the warehouse had been constructed in the applicant's own account, and the applicant's contention otherwise was not acceptable.

Referring to the Supreme Court case of Commnr. Of Central Excise, Ahmedabad v. Solid & Correct Engg. Works [LQ/SC/2010/376], the Authority observed that the intention behind the construction of the warehouse was for permanent beneficial enjoyment. The Authority found that the warehouse was not movable like other goods, and its construction was intended to be permanent at a specific location. Hence, the Authority considered the warehouse as immovable property due to its permanent characteristics.

The Authority determined that the restriction outlined in clause (d) of sub-section (5) of Section 17 of the Goods and Services Tax Act, regarding the ITC on goods or services received by the applicant for the construction of the warehouse, was applicable in the present case.

However, the Authority clarified that if the construction expenses for the warehouse were not capitalized in the books, ITC could be claimed and utilized to pay tax on the outward supply of services provided by renting the warehouse.